‘Lazy loans’ and ‘mortgage prisons’ placing thousands of Aussies in mortgage lock up
Homeowners are facing a double whammy of rapidly rising interest rates and falling house prices which is leaving a growing number of Aussies facing being locked up in mortgage prison.
When home values tumble, so too does an owner’s equity. ‘Mortgage prison’ occurs when a property’s Loan to Value Ratio (LVR) drops below the 80% threshold, meaning the owner has less than 20% equity in their home.
It’s common that lenders rarely refinance a loan above the 80% LVR mark without adding on costly Lenders Mortgage Insurance (LMI). This leaves mortgage holders locked in with their current lender, often stuck on an uncompetitive rate after their fixed rate term expires.
The situation is leaving Aussies paying higher mortgage repayments on properties that are worth less, with those who purchased at the top of the market with 5% or 10% deposits most at risk.
CEO of Lendi Group David Hyman explains how the current rising rate market is creating a perfect storm for Aussies, who are paying higher mortgage repayments on homes that are now worth less.
“Paying off a mortgage locked in prison is another emerging financial burden every day Aussies could now be facing as cost-of-living pressures continue to pile up,” said Hyman.
“Following years of super low interest rates, we’ve seen more people jump into the housing market looking to get a foot up, many with just 5% or 10% deposits.”
“It’s these buyers that are now at extreme risk of being left in mortgage prison, locked into an uncompetitive rate and unable to refinance with a new lender.”
Typical of a rising rate market, when interest rates go higher, a buyers borrowing capacity falls lower, meaning while a buyer may have qualified for a loan on their home prior to May this year, now they may not meet lender’s 3% borrowing buffer now, once again leaving them with nowhere to go.
“If rate rises move once again, it’s likely we’ll see even more Australians in this difficult situation, which is hinged on housing prices.”
This comes as Lendi data reveals half a billion in ‘lazy loans’ are left untouched by their owners over the past five years. This startling figure accounts for 25% of the two trillion outstanding in the mortgage market across Australia.
“Our advice to any homeowner who hasn’t yet reviewed their situation is to reach out to your broker to discuss your options before you find yourself without any.”
“By acting early and taking an active role in your mortgage, you can equip yourself with the best advice and information to prepare for what’s ahead.”
